The Morality of Outsourcing

An enlightening debate from the recent thought leadership summit.
 

By Dirk Olin 
 
 
The question was plain enough: Is outsourcing good for America? The venue was the Gaylord Hotel just outside Washington, D.C., in early May. Hundreds of HR practitioners and providers crowded the main ballroom to witness the Oxford-style debate, moderated by ABC’s Nightline co-anchor Terry Moran.
 
 
Before the debate, the audience was surveyed on the question. Their responses to whether “outsourcing” is “good”?
• No: 12. percent
• Yes: 45.5 percent
• Yes, but not offshoring: 42.5 percent
 
 
All the combatants quickly focused the argument on the more fractious of the two constructions: offshoring.
 
 
Opening for the anti-outsourcing team was David Andelman, editor of the World Policy Journal. “We stand for quality and uniformity and especially reliability as no other nation on earth,” he began. “So when it comes to offshoring, American companies are robbing their own customers and their own shareholders, risking subpar performance, aggravating their clients. . . . Even the Chinese recognize the value of ‘made in America.’ ”
 
 
Moving jobs abroad causes our own workforce’s skills to atrophy, Andelman continued. We lose entry-level training grounds, “sources of building expertise among our own young people and for our individual companies.”
 
 
And to those who say that offshoring’s leverage of lower wages results in lower prices for American consumers, Andelman rejoined, “Without jobs, U.S. customers won’t have the money to purchase at any price those products that they once made themselves.”
 
 
Daniel J. Ikenson, director of the Cato Institute’s Herbert A. Stiefel Center for Trade Policy Studies, began his response by taking issue with the question’s very phrasing. “Is triple bypass surgery good for America?” he asked rhetorically. “Nobody really wants to incentivize either process, but we should be happy that the alternative exists.” He noted that permitting a behavior was not the same as encouraging it. “Some groups of Americans might be hurt while others benefit,” he conceded. “But you have to ask the corollary: Is restricting outsourcing bad for America?”
 
 
Ikenson deemed “a caricature” the notion that offshoring created “a race to the bottom.” If that were the case, he conteneded, the productivity and investment in outsourcing to America wouldn’t be at rates as high as they are.
 

“The images of factories relocated from the Midwest to Mexico is the exception,” he said, in the finale to his opening remarks. “The reality is that 90 percent of offshoring is to sell to overseas consumers.”
 
 
But Thea Lee, deputy chief of staff and former chief international economist for the AFL-CIO, was having none of it.
 
 
Take an offshored call center or production system, she began: “What’s your interaction with your consumers? What’s the takeaway for them? Or in other areas, what’s your quality control and ability to monitor consumer safety? How often can lead paint show up from the toys of a Mattel factory in China before your consumers lose faith in you? The most valuable tool you have is your company’s brand name. Should you put that at risk by putting those jobs somewhere where you might save a few cents on the product but you might damage something much more valuable, which is your brand name?”
 
 
Lee followed by parsing a distinction between the one and the many. “Individually, a company’s decision to offshore might be rational, but is it good for society? If you take that mindset to its logical extreme and outsource everything that’s not nailed to the ground, what sort of country will we be living in?”
 
 
Lee laid what Moran deemed “a parade of horribles” at the feet of offshoring: wage inequality, workforce skills erosion, a higher trade deficit, and a reduced tax base. It’s not a zero sum game, she conceded. “But we need a more reciprocal relationship. Our trade arrangements need to protect the rights of workers and environmental standards.”
Dan Griswold, president of the National Association of Foreign-Trade Zones, finished the opening round for the pro-offshoring side. He was unapologetic.
 
 
“Because we’re a high-tech, high-skilled economy,” he said, “we’re going to tend to outsource the lower-end activities—the call centers, the rote programming.” That, he argued, “lets us do what we do best.”
 
 
Griswold granted that our trade deficit was large, but he contended that in many service sectors, America was a net-insourcer. He also argued that positive impacts abroad were not necessarily bad domestically, because newly elevated foreign workers “become better consumers of American companies.”
 
 
Griswold’s final opening salvo: “If we restrict outsourcing, Americans will lose here, and we’ll lose friends and goodwill abroad.”
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